Skip to main content

Cable Spectrum Deal Gets Hill Hearing

Cable operators' deal to sell advanced wireless spectrum to
Verizon got a thorough going-over Wednesday in a Senate Antitrust Subcommittee
hearing Wednesday as Comcast and Verizon execs billed it as value added for
consumers and deal opponents painted pictures of cable monopolies and wireless
duopolies calling a "truce" on competition.

The hearing was tellingly titled: "Verizon/Cable Deals:
Harmless Collaboration or a Threat to Competition and Consumers?" Following a
hearing on the proposed AT&T–T-Mobile merger, which was also billed as a
spectrum deal, Antitrust Subcommittee chair Herb Kohl (D-Wis.), who presided
over Wednesday's hearing, asked Justice and the FCC to block the deal, which
they ultimately did.

At Wednesday's hearing, Kohl was clearly concerned about the
impact of the Verizon/SpectrumCo/Cox deal. He suggested blocking the AT&T
deal had been a victory for competition, and pondered whether allowing this
deal would reclaim some of those gains.

SpectrumCo is a consortium owned by Comcast (63%), Time
Warner Cable (31.2%) and Bright House (5.3%), which bought the spectrum in the
FCC's 2006 AWS (advanced wireless services) auction along with Sprint, which
got bought out by the other consortium members in 2007. Cox dropped out in 2009
but took its spectrum with it.

Verizon is offering $3.6 billion for the SpectrumCo holdings
and $325 million for Cox's spectrum, subject to FCC approval.

There are also associated marketing agreements through which
Verizon and the cable operators will sell each other's services, Verizon able
to bundle Xfinity video service, and the Cable ops branding Verizon wireless
service as their own in a quadruple play bundle.

David Cohen, executive VP of Comcast, and Randal Milch,
executive VP of Verizon, defended the deal and agreements as consumer-friendly
and a way to free up more wireless spectrum and give consumers more choice of
services. Cohen said the marketing agreements were a "slam dunk"
benefit for consumers, and Milch assured the senators that it would continue to
spend millions to market FiOS video service in competition with cable, pointing
out that Verizon had spent $23 billion on FiOS and planned to get a return on
that investment for shareholders. Cohen agreed that it would make no sense for
Verizon to walk away from that investment.

Kohl, joined by Democratic Senator Al Franken of Minnesota,
probed the witnesses, which included deal opponents Steven Berry, president of
the Rural Cellular Association (RCA), and Free Press Policy Director Joel
Kelsey, about the possibility that the deal would lead to a virtual duopoly,
with Verizon, the largest wireless company, getting the last swath of
beachfront spectrum available for a while, or cable "collaboration"
rather than competition.

Kelsey said the deal should be blocked, that the FCC and
Justice denial of the AT&T-T-Mobile spectrum deal was a down payment on
more preserving competition, and nixing this deal would be the next

Berry said that RCA had not asked the FCC or Justice to
block the deal, but instead to only approve it with conditions including
affordable roaming agreements, backhaul conditions, interoperability and
spectrum divestitures where a revised FCC spectrum screen showed Verizon would
control too much spectrum.

Milch suggested that the FCC was already dealing with those
issues, and that rulemakings, not transactions, was the place to do so at any
rated. He pointed out that the FCC had just issued a proposed rulemaking on
interoperability and had already come out with one on roaming.

As Kohl pointed out, the committee has no power to block the
transaction, but he said he hoped the FCC and Justice would take the hearing
record into account during its vetting of the deal.

Sen. Mike Lee (R-Utah), ranking member of the subcommittee
and the only Republican questioning the panel, said the FCC should not punish
the companies for the government's mismanagement of spectrum and made sure the
witnesses had a chance to talk about the deal's upsides and efficiencies.
Cohen, for example, said that the marketing agreements would promote
"competition, choice, investment, and innovation," sounding like FCC
Chairman Julius Genachowski touting the virtues of freeing up more spectrum for
mobile broadband, which is what Comcast and Verizon argue the deal does.

Antitrust attorney and witness Charles Rule said the
"efficiencies" of the deal, which Lee said the government had to take
into account, included Verizon making use of spectrum cable operators had left
fallow, including to potentially improve the quality of its 4g service.

Franken said he was skeptical about the deal, saying it
appeared to throw in the towel on competition. He pointed to an FCC study about
the rise of cable rates -- over three times the rate of inflation -- and said
he feared the deal would lessen competition and lead to even higher rates.

Cohen pointed out that the FCC report had also shown that on
a per-channel basis the price of cable had actually gone down. He said that
nothing in the deal would prevent Comcast from trying to "beat the brains
out of FiOS" on quality and price, or for them to do the same with
Comcast. Milch said FiOS was a superior product to cable and said the company
would continue to spend hundreds of millions to market it as such.

Cohen pointed out that since the announced deal, FiOS has
offered FiOS at a third off.

In addition to the cross-marketing agreements, Verizon and
the cable ops have agreed to jointly fund a tech R&D center.

Franken asked for a pledge that whatever innovation came out
of that would be shared rather than proprietary. He got no such promises.

Franken also pushed Cohen on whether Comcast had talked to T-Mobile
before deciding to sell spectrum to the largest carrier. Cohen said they had
talked to virtually every player but concluded Verizon's was the best deal for
the company and its customers. Pressed further Cohen said the company had
talked to T-Mobile beginning in 2010 about spectrum.

Although Comcast and Verizon have argued that the FCC should
not tie its review of the spectrum licenses to that of the associated marketing
and R&D center agreements, Cohen stood by his earlier statement that the
two were, indeed integrated. He said that was a different issue from whether
the deals should be vetted separately. By integrated, he meant that for
Comcast, the deals represented an integrated play for Comcast, which did not
mean that they were legally tied, which he said they were not.

Cohen said Comcast had not warehoused the spectrum, which it
bought at auction in 2006, but simply eventually could not make a business case
for building a separate wireless network.

To the suggestion by Berry of RCA, whose members include
Sprint, T-Mobile and Cricket, that Verizon was warehousing spectrum, Milch said
those were "fighting words" in the mobile business, and that they were not